IRA comparison chart

Any person with earned income who is under 70-1/2.

A nonworking spouse under age 70-1/2 who files a joint return that includes earned income.

2008

Single filer with modified adjusted gross income (MAGI) of:

• $101,000 or less — full contribution
• $101,001–$115,999 — partial contribution
• $116,000 or more — not eligible

Joint filers with MAGI of:

• $159,000 or less — full contribution
• $159,001–$168,999 — partial contribution
• $169,000 or more — not eligible

Married, filing separately with MAGI of:

• $0–$9,999 — partial contribution
• $10,000 or more — not eligible

The total contribution to all your IRAs in 2008 is $5,000 or 100% of your compensation, whichever is less. If you’re age 50 or older, you can make an additional contribution of $1,000, for a total of $6,000 in 2008.

Same as traditional IRA, subject to phase-out range depending on modified adjusted gross income (MAGI) as explained above in Who is eligible.

2008

Single filer, retirement plan participant with modified adjusted gross income (MAGI) of:

• $53,000 or less — fully deductible
• $53,001–$62,999 — partially deductible
• $63,000 or more — nondeductible

Single filer, no retirement plan participation:

• fully deductible

Joint filer, retirement plan participant with MAGI of:

• $85,000 or less — fully deductible
• $85,001–$104,999 — partially deductible
• $105,000 or more — nondeductible

Joint filer, no retirement plan participation (but spouse is participant) with MAGI of:

• $159,000 or less — fully deductible
• $159,001–$168,999 — partially deductible
• $169,000 or more — nondeductible
  

Married, filing separately with MAGI of:

• $0–$9,999 — partial contribution
• $10,000 or more — not eligible

None of the contribution is tax-deductible.

Eligible taxpayers can claim a nonrefundable tax credit for contributions.

The maximum credit allowed is 50% of the annual contribution amount up to $2,000.

For 2008, joint filers with a modified adjusted gross income (MAGI) of $53,000 or less, heads of household with a MAGI of $39,750 or less and single filers with a MAGI of $26,500 or less qualify for the credit.

Same as traditional IRA.

Taxes are deferred until distributions are made; taxable distributions are treated as ordinary income.

If nondeductible contributions have been made, each withdrawal is taxed proportionately.

Contributions are made with after-tax money; therefore, withdrawals from the contribution amount (basis amount) are always tax-free.

Earnings grow tax-deferred until distributions begin. Distributions are taxed as ordinary income.

Qualified distributions are tax-free.

Nonqualified distributions: earnings are taxed as ordinary income.

Conversions: earnings are tax-free after the conversion amount satisfies the five-year investment period.

Conversion to a Roth IRA^*: allowed, if modified adjusted gross income (MAGI) is $100,000 or less (single or joint) and, if married, taxpayers file jointly. The converted amount is taxed as income, but no penalty applies.

Recharacterizations: a Roth conversion can be undone (recharacterized) for any reason, including if investors’ income for the tax year in which they converted exceeds the $100,000 MAGI limit. Investors have until their tax filing deadlines (including extensions) of the year they converted to a Roth IRA to undo their conversions.

To employer-sponsored plans: pretax contributions can be rolled over to a 401(k) or to another qualified plan, as well as to 403(b) and 457(b) plans. However, the receiving plan must accept IRA rollovers.

From employer-sponsored plans: eligible pretax and after-tax distributions from qualified plans, as well as from 403(b) and 457(b) plans, can be rolled over.

From/to another Roth IRA: allowed.

From employer-sponsored plans: eligible Roth contributions and earnings from qualified plans, as well as from 403(b) plans, can be rolled over.

Distributions from contributions and earnings can be taken after age 59-1/2 without federal tax penalty.

Mandatory withdrawals must begin at age 70-1/2.

Premature distributions are subject to a 10% penalty tax unless you qualify for the following exceptions:

• you’re age 59-1/2
• you’re disabled
• you’re taking substantially equal periodic payments
• the distribution is for certain medical bills
• the distribution is used for health insurance premiums during unemployment lasting at least 12 weeks
• the distribution is for post-secondary education expenses
• the distribution is used to purchase a first home (up to $10,000 lifetime maximum)

Distributions to your beneficiaries are also exempt from the 10% penalty.

Distributions from contributions can be made any time without taxes or federal tax penalty.

Distributions from earnings are tax-free if your initial contribution to the account was made at least five years ago and:

• you’re age 59-1/2
• you’re disabled
• you’re purchasing a first home

Payments made to your beneficiaries after the five-year period are also tax and penalty free. Payments made before the end of the five-year period are penalty free.

Distributions from earnings are not subject to the 10% penalty as long as you qualify for an exception:

• same as exceptions for traditional IRAs

Distributions from a conversion amount must satisfy a five-year investment period to avoid the 10% penalty. This pertains only to the conversion amount that was treated as income for tax purposes.

Must begin no later than April 1 of the year following the year the taxpayer turns 70-1/2. May be taken in a lump sum or annual payments. (Learn about the rules for RMDs.)

All IRA balances are aggregated, but the withdrawals may be taken from only one. However, the contributions/earnings are taxed pro rata.

No RMD applies before your death. After death, traditional IRA distribution rules apply for your beneficiaries.